What is KPI?

A KPI (Key Performance Indicator) is a quantitative measure tied to a specific business objective. KPIs are the metrics you actually act on — distinct from the larger universe of "things you can measure."

What makes a metric a KPI

A useful KPI is:

• Quantifiable — a number, not a feeling
• Comparable — over time and against benchmarks
• Actionable — moves in response to operational decisions
• Tied to an outcome — improving the KPI improves something you actually care about

SMB KPI examples by function

Finance: gross margin, operating margin, customer acquisition cost (CAC), monthly recurring revenue (MRR) for subscription businesses, days sales outstanding (DSO), cash conversion cycle.

Sales: pipeline coverage, win rate, sales cycle length, average deal size.

Operations: defect rate, inventory turnover, on-time delivery, capacity utilization.

Customer: net promoter score (NPS), churn rate, customer lifetime value (LTV).

KPI traps

• Vanity metrics — impressive numbers that don't tie to business outcomes (page views, social followers)
• Too many KPIs — if everything is a priority, nothing is. 3–5 KPIs per function is plenty
• Static targets — KPI targets need annual revision as business conditions change

Related terms